Publication 946
taxmap/pubs/p946026.htm#en_us_publink1000107554Words you may need to know (see Glossary)
 Adjusted basis
 Amortization
 Basis
 Business/investment use
 Convention
 Declining balance method
 Disposition
 Exchange
 Nonresidential real property
 Placed in service
 Property class
 Recovery period
 Straight line method
 Unadjusted Basis
To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Then, you are ready to figure your depreciation deduction. You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table.
taxmap/pubs/p946026.htm#en_us_publink1000107555To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. These percentage tables are in
Appendix A near the end of this publication.
taxmap/pubs/p946026.htm#en_us_publink1000107556Appendix A contains the
MACRS Percentage Table Guide,
which is designed to help you locate the correct percentage table to use for depreciating your property. The percentage tables immediately follow the
guide.
taxmap/pubs/p946026.htm#en_us_publink1000107557The following rules cover the use of the percentage tables.
 You must apply the rates in the percentage tables to your property's unadjusted basis.
 You cannot use the percentage tables for a short tax year. See
Figuring the Deduction for a Short Tax Year,
later, for information on the short tax year rules.
 Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the
property.
 You must stop using the tables if you adjust the basis of the property for any reason other
than—
 Depreciation allowed or allowable, or
 An addition or improvement to that property that is depreciated as a separate item of
property.
Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a cleanfuel deduction or credit and a reduction in basis for a casualty
loss.
taxmap/pubs/p946026.htm#en_us_publink1000107558If you increase the basis of your property because of the recapture of part or all of a deduction for cleanfuel vehicles or the credit for cleanfuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. See
Figuring the Deduction Without Using the Tables,
later.
taxmap/pubs/p946026.htm#en_us_publink1000107559If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. See
Figuring the Deduction Without Using the Tables,
later.
taxmap/pubs/p946026.htm#en_us_publink1000107560On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7year property. It cost $39,000 and she elected a section 179 deduction of $24,000. She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). She figured her MACRS depreciation deduction using the percentage tables. For 2012, her MACRS depreciation deduction was $268.
In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. She must now figure her depreciation for 2013 without using the percentage
tables.
taxmap/pubs/p946026.htm#en_us_publink1000107561You must apply the table rates to your property's unadjusted basis each year of the recovery period. Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. However, you do reduce your original basis by other amounts, including the following.
 Any amortization taken on the property.
 Any section 179 deduction claimed.
 Any special depreciation allowance taken on the property.
For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments.
taxmap/pubs/p946026.htm#en_us_publink1000107562You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Use a separate worksheet for each item of property. Then, use the information from this worksheet to prepare Form
4562.
 Do not use this worksheet for automobiles. Use the Depreciation Worksheet for Passenger Automobiles in
chapter 5. 
taxmap/pubs/p946026.htm#w13081f01  MACRS Worksheet
Part I
  1.  MACRS system (GDS or ADS)   2.  Property class   3.  Date placed in service   4.  Recovery period   5.  Method and convention   6.  Depreciation rate (from tables)   Part II
  7.  Cost or other basis*  $    8.  Business/investment use   %   9.  Multiply line 7 by line 8   $  10.  Total claimed for section 179 deduction and other items   $  11.  Subtract line 10 from line 9. This is your tentative basis for
depreciation   $  12.  Multiply line 11 by .50 if the 50% special depreciation allowance applies. This is your special depreciation allowance. Enter 0 if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance
  $  13.  Subtract line 12 from line 11. This is your basis for
depreciation    14.  Depreciation rate (from line 6)    15.  Multiply line 13 by line 14. This is your MACRS depreciation
deduction   $  *If real estate, do not include cost (basis) of land. 

The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS
worksheet.
taxmap/pubs/p946026.htm#en_us_publink1000107564You bought office furniture (7year property) for $10,000 and placed it in service on August 11, 2013. You use the furniture only for business. This is the only property you placed in service this year. You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. You use GDS and the halfyear convention to figure your depreciation. You refer to the
MACRS Percentage Table Guide
in Appendix A and find that you should use Table A1. Multiply your property's
unadjusted basis each year by the percentage for 7year property given in Table
A1. You figure your depreciation deduction using the MACRS worksheet as
follows.
taxmap/pubs/p946026.htm#en_us_publink100068774  MACRS Worksheet
Part I
 1.  MACRS system (GDS or ADS)  GDS  2.  Property class  7year  3.  Date placed in service  8/11/13  4.  Recovery period  7Year  5.  Method and convention  200%DB/HalfYear  6.  Depreciation rate (from tables)  .1429  Part II
 7.  Cost or other basis*  $10,000    8.  Business/investment use  100  %   9.  Multiply line 7 by line 8   $10,000  10.  Total claimed for section 179 deduction and other items   0  11.  Subtract line 10 from line 9. This is your tentative basis for
depreciation   $10,000  12.  Multiply line 11 by .50 if the 50% special depreciation allowance applies. This is your special depreciation allowance. Enter 0 if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance
  0  13.  Subtract line 12 from line 11. This is your basis for
depreciation   $10,000  14.  Depreciation rate (from line 6)   .1429  15.  Multiply line 13 by line 14. This is your MACRS depreciation
deduction   $1,429  *If real estate, do not include cost (basis) of land.


If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows.
Year   Basis  Percentage  Deduction 
2014  $  10,000  24.49%   $2,449  
2015   10,000  17.49   1,749  
2016   10,000  12.49   1,249  
2017   10,000  8.93   893  
2018   10,000  8.92   892  
2019   10,000  8.93   893  
2020   10,000  4.46   446  
taxmap/pubs/p946026.htm#en_us_publink1000107565The following examples are provided to show you how to use the percentage tables. In both examples, assume the following.
 You use the property only for business.
 You use the calendar year as your tax year.
 You use GDS for all the properties.
taxmap/pubs/p946026.htm#en_us_publink1000107566You bought a building and land for $120,000 and placed it in service on March 8. The sales contract showed that the building cost $100,000 and the land cost $20,000. It is nonresidential real property. The building's unadjusted basis is its original cost,
$100,000.
You refer to the
MACRS Percentage Table Guide
in Appendix A and find that you should use Table A7a. March is the third month
of your tax year, so multiply the building's unadjusted basis, $100,000, by the
percentages for the third month in Table A7a. Your depreciation deduction for
each of the first 3 years is as follows:
Year   Basis  Percentage  Deduction 
1st  $  100,000  2.033%   $2,033  
2nd   100,000  2.564   2,564  
3rd   100,000  2.564   2,564  
taxmap/pubs/p946026.htm#en_us_publink1000107567During the year, you bought a machine (7year property) for $4,000, office furniture (7year property) for $1,000, and a computer (5year property) for $5,000. You placed the machine in service in January, the furniture in September, and the computer in October. You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation
allowance.
You placed property in service during the last 3 months of the year, so you must first determine if you have to use the midquarter convention. The total bases of all property you placed in service during the year is $10,000. The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. Therefore, you must use the midquarter convention for all three
items.
You refer to the
MACRS Percentage Table Guide
in Appendix A to determine which table you should use under the midquarter
convention. The machine is 7year property placed in service in the first
quarter, so you use
Table A2. The furniture is 7year property placed in service in the third quarter, so you use
Table A4. Finally, because the computer is 5year property placed in service in the fourth quarter, you use
Table A6. Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows.
Year  Property  Basis  Percentage  Deduction 
1st  Machine  $4,000  25.00  $1,000  
2nd  Machine  4,000  21.43  857  
1st  Furniture  1,000  10.71  107  
2nd  Furniture  1,000  25.51  255  
1st  Computer  5,000  5.00  250  
2nd  Computer  5,000  38.00  1,900  
taxmap/pubs/p946026.htm#en_us_publink1000107568If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. You have disposed of your property if you have permanently withdrawn it from use in your business or incomeproducing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. After you figure the fullyear depreciation amount, figure the deductible part using the convention that applies to the property.
taxmap/pubs/p946026.htm#en_us_publink1000107569For property for which you used a halfyear convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year.
taxmap/pubs/p946026.htm#en_us_publink1000107570For property for which you used the midquarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property.
Quarter  Percentage 
First  12.5% 
Second  37.5 
Third  62.5 
Fourth  87.5 
taxmap/pubs/p946026.htm#en_us_publink1000107571On December 2, 2010, you placed in service an item of 5year property costing $10,000. You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Your unadjusted basis for the property was $10,000. You used the midquarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. Your property is in the 5year property class, so you used
Table A5
to figure your depreciation deduction. Your deductions for 2010, 2011, and 2012
were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22.80% of
$10,000). You disposed of the property on April 6, 2013. To determine your
depreciation deduction for 2013, first figure the deduction for the full year.
This is $1,368 (13.68% of $10,000). April is in the second quarter of the year,
so you multiply $1,368 by 37.5% to get your depreciation deduction of $513 for
2013.
taxmap/pubs/p946026.htm#en_us_publink1000107572If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. The denominator is 12.
taxmap/pubs/p946026.htm#en_us_publink1000107573On July 2, 2011, you purchased and placed in service residential rental property. The property cost $100,000, not including the cost of land. You used
Table A6
to figure your MACRS depreciation for this property. You sold the property on March 2, 2013. You file your tax return based on the calendar
year.
A full year of depreciation for 2013 is $3,636. This is $100,000 multiplied by .03636 (the percentage for the seventh month of the third recovery year) from
Table A6
. You then apply the midmonth convention for the 2
1/
2
months of use in 2013. Treat the month of disposition as onehalf month of use.
Multiply $3,636 by the fraction, 2.5 over 12, to get your 2013 depreciation
deduction of $757.50.
taxmap/pubs/p946026.htm#en_us_publink1000107574Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous
year.
 Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the
tables. 
taxmap/pubs/p946026.htm#en_us_publink1000107576When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. The straight line method is explained later.
You figure depreciation for the year you place property in service as follows.
 Multiply your adjusted basis in the property by the declining balance
rate.
 Apply the applicable convention.
You figure depreciation for all other years (before the year you switch to the straight line method) as follows.
 Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier
years.
 Multiply this new adjusted basis by the same declining balance rate used in earlier
years.
If you dispose of property before the end of its recovery period, see
Using the Applicable Convention,
later, for information on how to figure depreciation for the year you dispose of
it.
Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in
Example 1, later, under
Examples.
taxmap/pubs/p946026.htm#en_us_publink1000107577You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. For example, for 3year property depreciated using the 200% declining balance method, divide 2.00 (200%) by 3 to get 0.6667, or a 66.67% declining balance rate. For 15year property depreciated using the 150% declining balance method, divide 1.50 (150%) by 15 to get 0.10, or a 10% declining balance rate.
The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction.
Property Class  Method  Declining Balance Rate  Year 

3year  200% DB  66.667%  3rd 
5year  200% DB  40.0  4th 
7year  200% DB  28.571  5th 
10year  200% DB  20.0  7th 
15year  150% DB  10.0  7th 
20year  150% DB  7.5  9th 
taxmap/pubs/p946026.htm#en_us_publink1000107578When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. You must use the applicable convention in the year you place the property in service and the year you dispose of the property.
You figure depreciation for the year you place property in service as follows.
 Multiply your adjusted basis in the property by the straight line
rate.
 Apply the applicable convention.
You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows.
 Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any
method).
 Determine the depreciation rate for the year.
 Multiply the adjusted basis figured in (1) by the depreciation rate figured in
(2).
If you dispose of property before the end of its recovery period, see
Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of
it.
taxmap/pubs/p946026.htm#en_us_publink1000107579You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. If the number of years remaining is less than 1, the depreciation rate for that tax year is 1.0 (100%).
taxmap/pubs/p946026.htm#en_us_publink1000107580The applicable convention (discussed earlier under
Which Convention Applies) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. See
Straight line rate
in the previous discussion. Use the applicable convention as explained in the
following discussions.
taxmap/pubs/p946026.htm#en_us_publink1000107581If this convention applies, you deduct a halfyear of depreciation for the first year and the last year that you depreciate the property. You deduct a full year of depreciation for any other year during the recovery period.
Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property.
taxmap/pubs/p946026.htm#en_us_publink1000107582If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service.
A quarter of a full 12month tax year is a period of 3 months. The first quarter in a year begins on the first day of the tax year. The second quarter begins on the first day of the fourth month of the tax year. The third quarter begins on the first day of the seventh month of the tax year. The fourth quarter begins on the first day of the tenth month of the tax year. A calendar year is divided into the following quarters.
Quarter 
Months 
First  January, February, March 
Second  April, May, June 
Third  July, August, September 
Fourth  October, November, December 
Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service.
Quarter  Percentage 

First  87.5% 
Second  62.5 
Third  37.5 
Fourth  12.5 
If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property.
Quarter  Percentage 

First  12.5% 
Second  37.5 
Third  62.5 
Fourth  87.5 
If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the
property.
taxmap/pubs/p946026.htm#en_us_publink1000107583If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. The numerator of the fraction is the number of full months in the year that the property is in service plus
1/2 (or 0.5). The denominator is 12.
If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property.
taxmap/pubs/p946026.htm#en_us_publink1000107584You use the calendar year and place nonresidential real property in service in August. The property is in service 4 full months (September, October, November, and December). Your numerator is 4.5 (4 full months plus 0.5). You multiply the depreciation for a full year by 4.5/12, or 0.375.
taxmap/pubs/p946026.htm#en_us_publink1000107585The following examples show how to figure depreciation under MACRS without using the percentage tables. Figures are rounded for purposes of the examples. Assume for all the examples that you use a calendar year as your tax
year.
taxmap/pubs/p946026.htm#en_us_publink1000107586Example 1—200% DB method and halfyear convention.(p46)
In February, you placed in service depreciable property with a 5year recovery period and a basis of $1,000. You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. You use GDS and the 200% declining balance (DB) method to figure your depreciation. When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. You did not place any property in service in the last 3 months of the year, so you must use the halfyear
convention.
First year.
You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). The result is 40%. You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. You apply the halfyear convention by dividing the result ($400) by 2. Depreciation for the first year under the 200% DB method is
$200.
You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. The result is 20%.You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. You apply the halfyear convention by dividing the result ($200) by 2. Depreciation for the first year under the SL method is
$100.
The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB
method.
Second year.
You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). You multiply the result ($800) by the DB rate (40%). Depreciation for the second year under the 200% DB method is
$320.
You figure the SL depreciation rate by dividing 1 by 4.5, the number of years remaining in the recovery period. (Based on the halfyear convention, you used only half a year of the recovery period in the first year.) You multiply the reduced adjusted basis ($800) by the result (22.22%). Depreciation under the SL method for the second year is
$178.
The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB
method.
Third year.
You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). You multiply the result ($480) by the DB rate (40%). Depreciation for the third year under the 200% DB method is
$192.
You figure the SL depreciation rate by dividing 1 by 3.5. You multiply the reduced adjusted basis ($480) by the result (28.57%). Depreciation under the SL method for the third year is
$137.
The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB
method.
Fourth year.
You reduce the adjusted basis ($480) by the depreciation claimed in the third year ($192). You multiply the result ($288) by the DB rate (40%). Depreciation for the fourth year under the 200% DB method is
$115.
You figure the SL depreciation rate by dividing 1 by 2.5. You multiply the reduced adjusted basis ($288) by the result (40%). Depreciation under the SL method for the fourth year is
$115.
The SL method provides an equal deduction, so you switch to the SL method and deduct the
$115.
Fifth year.
You reduce the adjusted basis ($288) by the depreciation claimed in the fourth year ($115) to get the reduced adjusted basis of $173. You figure the SL depreciation rate by dividing 1 by 1.5. You multiply the reduced adjusted basis ($173) by the result (66.67%). Depreciation under the SL method for the fifth year is $115.
Sixth year.
You reduce the adjusted basis ($173) by the depreciation claimed in the fifth year ($115) to get the reduced adjusted basis of $58. There is less than one year remaining in the recovery period, so the SL depreciation rate for the sixth year is 100%. You multiply the reduced adjusted basis ($58) by 100% to arrive at the depreciation deduction for the sixth year
($58).
taxmap/pubs/p946026.htm#en_us_publink1000107587Example 2—SL method and midmonth convention.(p46)
In January, you bought and placed in service a building for $100,000 that is nonresidential real property with a recovery period of 39 years. The adjusted basis of the building is its cost of $100,000. You use GDS, the straight line (SL) method, and the midmonth convention to figure your depreciation.
First year.
You figure the SL depreciation rate for the building by dividing 1 by 39 years.
The result is .02564. The depreciation for a full year is $2,564 ($100,000
× .02564). Under the midmonth convention, you treat the property as placed
in service in the middle of January. You get 11.5 months of depreciation for the
year. Expressed as a decimal, the fraction of 11.5 months divided by 12 months
is .958. Your firstyear depreciation for the building is $2,456 ($2,564 ×
.958).
Second year.
You subtract $2,456 from $100,000 to get your adjusted basis of $97,544 for the
second year. The SL rate is .02629. This is 1 divided by the remaining recovery
period of 38.042 years (39 years reduced by 11.5 months or .958 year). Your
depreciation for the building for the second year is $2,564 ($97,544 ×
.02629).
Third year.
The adjusted basis is $94,980 ($97,544 − $2,564). The SL rate is .027 (1
divided by 37.042 remaining years). Your depreciation for the third year is
$2,564 ($94,980 × .027).
taxmap/pubs/p946026.htm#en_us_publink1000107588Example 3—200% DB method and midquarter convention.(p46)
During the year, you bought and placed in service in your business the following items.
Item  Month Placed in Service  Cost 
Safe  January  $4,000 
Office furniture  September  1,000 
Computer (not listed property)  October  5,000 
You do not elect a section 179 deduction and these items do not qualify for a special depreciation allowance. You use GDS and the 200% declining balance (DB) method to figure the depreciation. The total bases of all property you placed in service this year is $10,000. The basis of the computer ($5,000) is more than 40% of the total bases of all property placed in service during the year ($10,000), so you must use the midquarter convention. This convention applies to all three items of property. The safe and office furniture are 7year property and the computer is 5year
property.
First and second year depreciation for safe.
The 200% DB rate for 7year property is .28571. You determine this by dividing
2.00 (200%) by 7 years. The depreciation for the safe for a full year is $1,143
($4,000 × .28571). You placed the safe in service in the first quarter of
your tax year, so you multiply $1,143 by 87.5% (the midquarter percentage for
the first quarter). The result, $1,000, is your deduction for depreciation on
the safe for the first year.
For the second year, the adjusted basis of the safe is $3,000. You figure this by subtracting the first year's depreciation ($1,000) from the basis of the safe ($4,000). Your depreciation deduction for the second year is
$857
($3,000 × .28571).
First and second year depreciation for furniture.
The furniture is also 7year property, so you use the same 200% DB rate of
.28571. You multiply the basis of the furniture ($1,000) by .28571 to get the
depreciation of $286 for the full year. You placed the furniture in service in
the third quarter of your tax year, so you multiply $286 by 37.5% (the
midquarter percentage for the third quarter). The result, $107, is your
deduction for depreciation on the furniture for the first year.
For the second year, the adjusted basis of the furniture is $893. You figure this by subtracting the first year's depreciation ($107) from the basis of the furniture ($1,000). Your depreciation for the second year is $255 ($893 ×
.28571).
First and second year depreciation for computer.
The 200% DB rate for 5year property is .40. You determine this by dividing 2.00
(200%) by 5 years. The depreciation for the computer for a full year is $2,000
($5,000 × .40). You placed the computer in service in the fourth quarter of
your tax year, so you multiply the $2,000 by 12.5% (the midquarter percentage
for the fourth quarter). The result, $250, is your deduction for depreciation on
the computer for the first year.
For the second year, the adjusted basis of the computer is $4,750. You figure this by subtracting the first year's depreciation ($250) from the basis of the computer ($5,000). Your depreciation deduction for the second year is $1,900 ($4,750 ×
.40).
taxmap/pubs/p946026.htm#en_us_publink1000107589Example 4—200% DB method and halfyear convention.(p47)
Last year, in July, you bought and placed in service in your business a new item of 7year property. This was the only item of property you placed in service last year. The property cost $39,000 and you elected a $24,000 section 179 deduction. You also took a special depreciation allowance of $7,500. Your unadjusted basis for the property is $7,500. Because you did not place any property in service in the last 3 months of your tax year, you used the halfyear convention. You figured your deduction using the percentages in
Table A1
for 7year property. Last year, your depreciation was $1,072 ($7,500 ×
14.29%).
In July of this year, your property was vandalized. You had a deductible casualty loss of $3,000. You spent $3,500 to put the property back in operational order. Your adjusted basis at the end of this year is $6,928. You figured this by first subtracting the first year's depreciation ($1,072) and the casualty loss ($3,000) from the unadjusted basis of $7,500. To this amount ($3,428), you then added the $3,500 repair
cost.
You cannot use the table percentages to figure your depreciation for this property for this year because of the adjustments to basis. You must figure the deduction yourself. You determine the DB rate by dividing 2.00 (200%) by 7 years. The result is .28571 or 28.571%. You multiply the adjusted basis of your property ($6,928) by the declining balance rate of .28571 to get your depreciation deduction of $1,979 for this
year.
taxmap/pubs/p946026.htm#en_us_publink1000107590taxmap/pubs/p946026.htm#en_us_publink1000107591You generally must depreciate the carryover basis of property acquired in a likekind exchange or involuntary conversion over the remaining recovery period of the property exchanged or involuntarily converted. You also generally continue to use the same depreciation method and convention used for the exchanged or involuntarily converted property. This applies only to acquired property with the same or a shorter recovery period and the same or more accelerated depreciation method than the property exchanged or involuntarily converted. The excess basis (the part of the acquired property's basis that exceeds its carryover basis), if any, of the acquired property is treated as newly placed in service property.
For acquired property that has a longer recovery period or less accelerated depreciation method than the exchanged or involuntarily converted property, you generally must depreciate the carryover basis of the acquired property as if it were placed in service in the same tax year as the exchanged or involuntarily converted property. You also generally continue to use the longer recovery period and less accelerated depreciation method of the acquired
property.
taxmap/pubs/p946026.htm#en_us_publink1000107592Instead of using the above rules, you can elect, for depreciation purposes, to treat the adjusted basis of the exchanged or involuntarily converted property as if disposed of at the time of the exchange or involuntary conversion. Treat the carryover basis and excess basis, if any, for the acquired property as if placed in service the later of the date you acquired it or the time of the disposition of the exchanged or involuntarily converted property. The depreciable basis of the new property is the adjusted basis of the exchanged or involuntarily converted property plus any additional amount you paid for it. The election, if made, applies to both the acquired property and the exchanged or involuntarily converted property. This election does not affect the amount of gain or loss recognized on the exchange or involuntary
conversion.
taxmap/pubs/p946026.htm#en_us_publink1000107593You must make the election on a timely filed return (including extensions) for the year of replacement. The election must be made separately by each person acquiring replacement property. In the case of a partnership, S corporation, or consolidated group, the election is made by the partnership, by the S corporation, or by the common parent of a consolidated group, respectively. Once made, the election may not be revoked without IRS
consent.
For more information and special rules, see the Instructions for Form
4562.
taxmap/pubs/p946026.htm#en_us_publink1000107594You must depreciate MACRS property acquired by a corporation or partnership in certain nontaxable transfers over the property's remaining recovery period in the transferor's hands, as if the transfer had not occurred. You must continue to use the same depreciation method and convention as the transferor. You can depreciate the part of the property's basis that exceeds its carryover basis (the transferor's adjusted basis in the property) as newly purchased MACRS property.
The nontaxable transfers covered by this rule include the following.
 A distribution in complete liquidation of a subsidiary.
 A transfer to a corporation controlled by the transferor.
 An exchange of property solely for corporate stock or securities in a
reorganization.
 A contribution of property to a partnership in exchange for a partnership
interest.
 A partnership distribution of property to a partner.
taxmap/pubs/p946026.htm#en_us_publink1000107595You cannot use the MACRS percentage tables to determine depreciation for a short tax year. A short tax year is any tax year with less than 12 full months. This section discusses the rules for determining the depreciation deduction for property you place in service or dispose of in a short tax year. It also discusses the rules for determining depreciation when you have a short tax year during the recovery period (other than the year the property is placed in service or disposed
of).
For more information on figuring depreciation for a short tax year, see Revenue Procedure 8915, 19891 C.B.
816.
taxmap/pubs/p946026.htm#en_us_publink1000107596The applicable convention establishes the date property is treated as placed in service and disposed of. Depreciation is allowable only for that part of the tax year the property is treated as in service. The recovery period begins on the placed in service date determined by applying the convention. The remaining recovery period at the beginning of the next tax year is the full recovery period less the part for which depreciation was allowable in the first tax year.
The following discussions explain how to use the applicable convention in a short tax
year.
taxmap/pubs/p946026.htm#en_us_publink1000107597Under the midmonth convention, you always treat your property as placed in service or disposed of on the midpoint of the month it is placed in service or disposed of. You apply this rule without regard to your tax year.
taxmap/pubs/p946026.htm#en_us_publink1000107598Under the halfyear convention, you treat property as placed in service or disposed of on the midpoint of the tax year it is placed in service or disposed of.
taxmap/pubs/p946026.htm#en_us_publink1000107599For a short tax year beginning on the first day of a month or ending on the last day of a month, the tax year consists of the number of months in the tax year. If the short tax year includes part of a month, you generally include the full month in the number of months in the tax year. You determine the midpoint of the tax year by dividing the number of months in the tax year by 2. For the halfyear convention, you treat property as placed in service or disposed of on either the first day or the midpoint of a
month.
For example, a short tax year that begins on June 20 and ends on December 31 consists of 7 months. You use only full months for this determination, so you treat the tax year as beginning on June 1 instead of June 20. The midpoint of the tax year is the middle of September
(31/2
months from the beginning of the tax year). You treat property as placed in
service or disposed of on this midpoint.
taxmap/pubs/p946026.htm#en_us_publink1000107600Tara Corporation, a calendar year taxpayer, was incorporated on March 15. For purposes of the halfyear convention, it has a short tax year of 10 months, ending on December 31, 2013. During the short tax year, Tara placed property in service for which it uses the halfyear convention. Tara treats this property as placed in service on the first day of the sixth month of the short tax year, or August 1,
2013.
taxmap/pubs/p946026.htm#en_us_publink1000107601For a short tax year not beginning on the first day of a month and not ending on the last day of a month, the tax year consists of the number of days in the tax year. You determine the midpoint of the tax year by dividing the number of days in the tax year by 2. For the halfyear convention, you treat property as placed in service or disposed of on either the first day or the midpoint of a month. If the result of dividing the number of days in the tax year by 2 is not the first day or the midpoint of a month, you treat the property as placed in service or disposed of on the nearest preceding first day or midpoint of a month.
taxmap/pubs/p946026.htm#en_us_publink1000107602To determine if you must use the midquarter convention, compare the basis of property you place in service in the last 3 months of your tax year to that of property you place in service during the full tax year. The length of your tax year does not matter. If you have a short tax year of 3 months or less, use the midquarter convention for all applicable property you place in service during that tax year.
You treat property under the midquarter convention as placed in service or disposed of on the midpoint of the quarter of the tax year in which it is placed in service or disposed of. Divide a short tax year into 4 quarters and determine the midpoint of each quarter.
For a short tax year of 4 or 8 full calendar months, determine quarters on the basis of whole months. The midpoint of each quarter is either the first day or the midpoint of a month. Treat property as placed in service or disposed of on this
midpoint.
To determine the midpoint of a quarter for a short tax year of other than 4 or 8 full calendar months, complete the following steps.
 Determine the number of days in your short tax year.
 Determine the number of days in each quarter by dividing the number of days in your short tax
year
by 4.  Determine the midpoint of each quarter by dividing the number of days in each quarter by
2.
If the result of (3) gives you a midpoint of a quarter that is on a day other than the first day or midpoint of a month, treat the property as placed in service or disposed of on the nearest preceding first day or midpoint of that month.
taxmap/pubs/p946026.htm#en_us_publink1000107603Tara Corporation, a calendar year taxpayer, was incorporated and began business on March 15. It has a short tax year of
9
1/
2
months, ending on December 31. During December, it placed property in service
for which it must use the midquarter convention. This is a short tax year of
other than 4 or 8 full calendar months, so it must determine the midpoint of
each quarter.
 First, it determines that its short tax year beginning March 15 and ending December 31 consists of 292
days.
 Next, it divides 292 by 4 to determine the length of each quarter, 73
days.
 Finally, it divides 73 by 2 to determine the midpoint of each quarter, the 37th
day.
The following table shows the quarters of Tara Corporation's short tax year, the midpoint of each quarter, and the date in each quarter that Tara must treat its property as placed in service.
Quarter  Midpoint  Placed in Service 

3/15 – 5/26  4/20  4/15 
5/27 – 8/07  7/02  7/01 
8/08 – 10/19  9/13  9/01 
10/20 – 12/31  11/25  11/15 
The last quarter of the short tax year begins on October 20, which is 73 days from December 31, the end of the tax year. The 37th day of the last quarter is November 25, which is the midpoint of the quarter. November 25 is not the first day or the midpoint of November, so Tara Corporation must treat the property as placed in service in the middle of November (the nearest preceding first day or midpoint of that month).
taxmap/pubs/p946026.htm#en_us_publink1000107604To figure your MACRS depreciation deduction for the short tax year, you must first determine the depreciation for a full tax year. You do this by multiplying your basis in the property by the applicable depreciation rate. Then, determine the depreciation for the short tax year. Do this by multiplying the depreciation for a full tax year by a fraction. The numerator (top number) of the fraction is the number of months (including parts of a month) the property is treated as in service during the tax year (applying the applicable convention). The denominator (bottom number) is 12. See
Depreciation After a Short Tax Year, later, for information on how to figure depreciation in later years.
taxmap/pubs/p946026.htm#en_us_publink1000107605Example 1—halfyear convention.(p49)
Tara Corporation, with a short tax year beginning March 15 and ending December 31, placed in service on March 16 an item of 5year property with a basis of $1,000. This is the only property the corporation placed in service during the short tax year. Tara does not elect to claim a section 179 deduction and the property does not qualify for a special depreciation allowance. The depreciation method for this property is the 200% declining balance method. The depreciation rate is 40% and Tara applies the halfyear
convention.
Tara treats the property as placed in service on
August 1. The determination of this August 1 date is explained in the example illustrating the halfyear convention under
Using the Applicable Convention in a Short Tax Year, earlier. Tara is allowed 5 months of depreciation for the short tax year that consists of 10 months. The corporation first multiplies the basis ($1,000) by 40% (the declining balance rate) to get the depreciation for a full tax year of $400. The corporation then multiplies $400 by
5/
12 to get the short tax year depreciation of $167.
taxmap/pubs/p946026.htm#en_us_publink1000107606Example 2—midquarter convention.(p50)
Tara Corporation, with a short tax year beginning March 15 and ending on December 31, placed in service on October 16 an item of 5year property with a basis of $1,000. Tara does not elect to claim a section 179 deduction and the property does not qualify for a special depreciation allowance. The depreciation method for this property is the 200% declining balance method. The depreciation rate is 40%. The corporation must apply the midquarter convention because the property was the only item placed in service that year and it was placed in service in the last 3 months of the tax
year.
Tara treats the property as placed in service on September 1. This date is shown in the table provided in the example illustrating the midquarter convention under
Using the Applicable Convention in a Short Tax Year, earlier, for property that Tara Corporation placed in service during the quarter that begins on August 8 and ends on October 19. Under MACRS, Tara is allowed 4 months of depreciation for the short tax year that consists of 10 months. The corporation first multiplies the basis ($1,000) by 40% to get the depreciation for a full tax year of $400. The corporation then multiplies $400 by
4/
12 to get the short tax year depreciation of $133.
taxmap/pubs/p946026.htm#en_us_publink1000107607If you have a short tax year after the tax year in which you began depreciating property, you must change the way you figure depreciation for that property. If you were using the percentage tables, you can no longer use them. You must figure depreciation for the short tax year and each later tax year as explained next.
taxmap/pubs/p946026.htm#en_us_publink1000107608You can use either of the following methods to figure the depreciation for years after a short tax year.
 The simplified method.
 The allocation method.
You must use the method you choose consistently.
taxmap/pubs/p946026.htm#en_us_publink1000107609Under the simplified method, you figure the depreciation for a later 12month year in the recovery period by multiplying the adjusted basis of your property at the beginning of the year by the applicable depreciation rate.
taxmap/pubs/p946026.htm#en_us_publink1000107610Assume the same facts as in
Example 1 under
Property Placed in Service in a Short Tax Year, earlier. The Tara Corporation claimed depreciation of $167 for its short tax year. The adjusted basis on January 1 of the next year is $833 ($1,000 − $167). Tara's depreciation for that next year is 40% of $833, or
$333.
taxmap/pubs/p946026.htm#en_us_publink1000107611If a later tax year in the recovery period is a short tax year, you figure depreciation for that year by multiplying the adjusted basis of the property at the beginning of the tax year by the applicable depreciation rate, and then by a fraction. The fraction's numerator is the number of months (including parts of a month) in the tax year. Its denominator is 12.
taxmap/pubs/p946026.htm#en_us_publink1000107612If you dispose of property in a later tax year before the end of the recovery period, determine the depreciation for the year of disposition by multiplying the adjusted basis of the property at the beginning of the tax year by the applicable depreciation rate and then multiplying the result by a fraction. The fraction's numerator is the number of months (including parts of a month) the property is treated as in service during the tax year (applying the applicable convention). Its denominator is 12.
taxmap/pubs/p946026.htm#en_us_publink1000107613Under the allocation method, you figure the depreciation for each later tax year by allocating to that year the depreciation attributable to the parts of the recovery years that fall within that year. Whether your tax year is a 12month or short tax year, you figure the depreciation by determining which recovery years are included in that year. For each recovery year included, multiply the depreciation attributable to that recovery year by a fraction. The fraction's numerator is the number of months (including parts of a month) that are included in both the tax year and the recovery year. Its denominator is 12. The allowable depreciation for the tax year is the sum of the depreciation figured for each recovery year.
taxmap/pubs/p946026.htm#en_us_publink1000107614Assume the same facts as in
Example 1 under
Property Placed in Service in a Short Tax Year, earlier. The Tara Corporation's first tax year after the short tax year is a full year of 12 months, beginning January 1 and ending December 31. The first recovery year for the 5year property placed in service during the short tax year extends from August 1 to July 31. Tara deducted 5 months of the first recovery year on its shortyear tax return. Seven months of the first recovery year and 5 months of the second recovery year fall within the next tax year. The depreciation for the next tax year is $333, which is the sum of the following.
 $233—The depreciation for the first recovery year
($400 ×
7/12).  $100—The depreciation for the second recovery year. This is figured by multiplying the adjusted basis of $600 ($1,000 − $400) by 40%, then multiplying the $240 result by
5/12.
taxmap/pubs/p946026.htm#en_us_publink1000107615If you dispose of property before the end of the recovery period in a later tax year, determine the depreciation for the year of disposition by multiplying the depreciation figured for each recovery year or part of a recovery year included in the tax year by a fraction. The numerator of the fraction is the number of months (including parts of months) the property is treated as in service in the tax year (applying the applicable convention). The denominator is 12. If there is more than one recovery year in the tax year, you add together the depreciation for each recovery year.